There’s still hope for BlackBerry, but don’t thank RIM’s new CEO

It’s been a bumpy week for RIM. On Sunday, the Canadian smartphone maker’s co-CEOs tried their best to quietly resign and hand over the CEO position to their former Chief Operating Officer, Thorsten Heins. For months, investors and journalists have been calling for Research in Motion’s co-CEOs, Jim Balsillie and Mike Lazaridis — who have each taken turns running the company since it was founded in 1991 — to step down. Until Sunday, they showed no signs of doing so.

Worse, though RIM’s smartphone market share has been steadily dropping in the months since the company’s BlackBerry 7 device lineup launched (Sept. 2011), new CEO Thorsten Heins repeatedly asserted in multiple interviews that RIM has no real structural problems, and that he doesn’t plan to shake the company up much aside from hiring a new marketing officer. Tech journalists, analysts, and bloggers have been chattering like crazy, and no one seems fond of the new CEO. From a distance, he appears to be a Yes man, planted at the top to carry out already established plans.

So what’s going on here? Is Thorsten Heins actually in charge of RIM? More importantly, does the company need a huge structural and strategic overhaul, or is it mainly an image problem? Has RIM already made the changes and laid out the plan that it needs to succeed, or is it too little, too late?

Giving up the two-seated throne

Mike Lazaridis founded RIM in 1984 and Jim Balsillie a self-described jock, joined him as co-CEO in 1991. The unique dual-power arrangement had Balsillie tackling the business side of RIM and Lazaridis focusing mostly on the products and technology. For many years, it worked, but since the debut of the iPhone, two CEOs seem to be proving worse than one.

RIM has had a rough few years. The company has gone from being the biggest smartphone maker in the United States (with a massive 80 percent market share on Verizon) to a niche player that seems unable to win over new customers as the market shifts toward touch-based operating systems thanks to the massive success of the iPhone, which debuted in 2007. In 2008, RIM attempted to counter the iPhone with the Storm, its first touch-based BlackBerry, but the device was a failure. After that, the company retreated back to its comfortable, keyboarded lineup of BlackBerry Curves and Pearls. The co-CEOs many times stated that RIM’s focus on QWERTY keyboards was one of its best differentiating features. They’ve introduced more touch-based BlackBerry phones, but none have succeeded in redefining the brand. And so, a couple years ago the CEOs brushed the U.S. under the rug and focused on the international market.

“The dilemma is that the U.S. went down the high-end smartphone market and the international market grew greatly,” Balsillie said in an interview. “So the question is where you put your resources? We couldn’t do both. We were explosive growth internationally. Do we leverage core franchise and go international, or do we move higher end for the U.S. market?”

The company made the wrong choice. By focusing on the international market, it succeeded in boosting short-term profits, but the United States turned out to be a trend setter for the rest of the world, which has now begun following in its footsteps, leaving Nokia-like feature phones and BlackBerry devices for touchscreen phones running Android and iOS. They have become so popular that users began demanding to use them at work, carving into RIM’s strongest asset: businesses.

The year of hell

2011 proved to be a fascinating year for RIM. The company continued to churn out record revenues from overseas, but its position in the US market began fading fast. From October to December alone, RIM’s market share dropped from 7.7 percent to 4.5 percent due to explosive sales of competing devices. The company’s share of the world smartphone market isn’t better, having dropped to 11 percent in the third quarter of 2011 from 19 percent in mid 2010. The Canadian company’s stock has followed the same downward arrow. Between June 2008 (when the iPhone 3G came out) and June 2011, RIM’s shareholders lost nearly $70 billion, or 82 percent of the smartphone maker’s value. That same month, RIM also laid off more than 2,000 employees.

2011 was also home to two failed product launches: BlackBerry 7 and the PlayBook.

PlayBook: In April, the co-CEOs entered the blossoming tablet market with the BlackBerry PlayBook, a 7-inch tablet running a completely new operating system based on QNX, an OS that RIM purchased a couple years earlier. In an interview in Dec. 2010, Lazaridis spilled that the PlayBook was a sign of things to come from RIM and that future phones would be dual-core and run QNX as well. (These new phones later came to be known as BBX, but due to legal issues it will now be called BlackBerry 10.) This sounds grand and good, except that the launch of the PlayBook was a bit of a disaster.

When the PlayBook launched, it was clearly a nice-looking piece of hardware released before it was complete. The PlayBook software had huge bugs that required a number of bi-weekly updates to fix. Both businesses and mainstream consumers were confused about what it brought to the table. Did we mention that it lacking common apps like integrated email and calendar support? It also had next to no viable apps in its app store, and RIM’s included apps for things like podcasting were woefully broken or incomplete. We were very optimistic in our review of the PlayBook, but RIM also beat down our expectations throughout 2011, promising email, calendar, and Android app support by summer and not delivering it until…well…never. At least, not yet. These updates are supposedly coming next month (Feb. 2012).

RIM expected the PlayBook to be such a success that it manufactured 2 million of the tablets. Due to lack of demand, it has still only sold about half of its inventory, even after several price cuts, and had to write off $500 million due to the unsold tablets. Now RIM is distributing PlayBooks to developers who wish to work on the upcoming BlackBerry 10 platform.

BlackBerry 7: The second big failure of 2011 was the launch of the BlackBerry 7 platform and devices. While these devices did not have the problems of the PlayBook, they did not help RIM to recapture any momentum. Following the launch of several new BlackBerry Bold, Curve, and Torch phones, RIM’s market share began to dwindle faster than ever. Several BB 7 devices featured touchscreens, but the phones featured no marked improvement in user interface, features, or processing power. They looked a bit slicker, but RIM seemed to be mostly churning out established designs with little innovation. As a result, the company’s smartphone market share fell dramatically over the holidays as the iPhone and Android both posted record sales in late 2011. RIM became almost a complete non-player in the market, with a market share so low that Windows Phone now has a good shot at becoming the number three smartphone OS in 2012 (though Microsoft definitely has its work cut out).